1917.170-1917.175
CIVIL CODE
SECTION 1917.170-1917.175
1917.170. (a) The disclosures made pursuant to this chapter, as required, shall be the only disclosures required to be made pursuant to state law for shared appreciation loans, notwithstanding any contrary provision applicable to loans not made under this chapter, except those, if any, that may be required by reason of the application of Division 1 (commencing with Section 25000) of the Corporations Code, or Chapter 1 (commencing with Section 11000) of Part 2 of Division 4 of the Business and Professions Code. However, a lender shall not be precluded from supplementing the disclosures required by this chapter with additional disclosures that are not inconsistent with the disclosures required by this chapter. (b) Whenever specific language is prescribed by this chapter, substantially the same language shall be utilized if possible, but reasonably equivalent language may be used to the extent necessary or appropriate to achieve a clearer or more accurate disclosure. 1917.171. (a) Each lender offering shared appreciation loans shall furnish to a prospective borrower, on the earlier of the dates on which the lender first provides written information concerning shared appreciation loans from the lender or provides a loan application form to the prospective borrower, a written disclosure as provided in this section. (b) The disclosure shall be entitled "INFORMATION ABOUT THE (Name of Lender) SHARED APPRECIATION LOAN," and shall describe the operation and effect of the shared appreciation loan including a brief summary of its terms and conditions, together with a statement consisting of substantially the following language, to the extent applicable to such loan: INFORMATION ABOUT THE (Name of Lender) SHARED APPRECIATION LOAN (Name of Lender) is pleased to offer you the opportunity to finance your home through a shared appreciation loan. Because the shared appreciation loan differs from the usual mortgage loan, the law requires that you have a detailed explanation of the special features of the loan before you apply. Before you sign your particular shared appreciation loan documents, you will receive more information about your particular shared appreciation loan, which you should read and understand before you sign the loan documents. The loan will bear a stated rate of interest which will be (percent) below the prevailing market interest rate. In exchange for a stated interest rate which is below the prevailing rate, you will be obligated to pay us additional interest later. This additional interest is called "contingent interest." The loan will require a balloon payment at the end of the _____ year. Thus, if you do not sell the property before that time, you will need to refinance the loan at that time. Contingent Interest This loan provides that you, as borrower, must pay to us, as lender, as contingent interest, (percent) of the net appreciated value of the real property which secures the loan. This contingent interest is due and payable when the property is sold or transferred, when the loan is paid in full, upon any acceleration of the loan upon default, or at the end of the term of the loan, whichever first occurs. The dollar amount of contingent interest, if any, which you will be required to pay cannot be determined at this time. If the property does not appreciate, you will owe us nothing. The contingent interest will not become due if title to the property is transferred on your death to a spouse, or where a transfer results from a decree of dissolution of a marriage and a spouse becomes the sole owner. Your obligation to pay contingent interest will reduce the amount of the appreciation, if any, that you will realize on the property. This appreciation will not produce a real gain in your equity in the property, unless the appreciation rate exceeds the general inflation rate, but you will be required to pay a portion of the appreciation as contingent interest without regard to whether the appreciation has resulted in a real gain. When you sell or refinance your home, you normally will receive enough cash to pay the shared appreciation loan balance, accrued interest, prepayment charge (if applicable), contingent interest, and expenses of sale. However, if you sell with only a small downpayment, you may possibly not receive enough cash to pay the contingent interest, and, in that event, it will be necessary for you to provide cash from other funds. Calculating the Contingent Interest Contingent interest will be calculated as follows: FAIR MARKET VALUE OF THE PROPERTY (Sale price or appraised value. - (less) BORROWER'S COST OF THE PROPERTY (This amount includes certain costs paid by you incident to the purchase. - (less) VALUE OF CAPITAL IMPROVEMENTS MADE BY YOU (Must exceed $2,500 in value. Must also exceed $2,500 in cost unless you perform more than 50% of the value of the labor or work on the improvement. _______________________________________________ = (equals) NET APPRECIATED VALUE x (times) ______ PERCENT OWED TO LENDER = (equals) TOTAL CONTINGENT INTEREST Determining Fair Market Value If you sell your property for cash before maturity of your shared appreciation loan, the gross sale price will be the fair market value of the property, unless appraisals are requested by us and the appraisals average more than the gross sale price. However, at your request, we also will tell you what we consider to be the fair market value of the property. If you sell for cash for a gross sale price that equals or exceeds that amount, the gross sale price will control and appraisals will not be needed. Fair market value is determined by appraisals in the event of sales involving a consideration other than cash, prepayment of the loan in full, or maturity of the loan. When appraisals are required, fair market value is determined by averaging two independent appraisals of the property. You may select one of the two appraisers from a list approved by the Federal National Mortgage Association. If appraisals are requested by us, we will provide you with full information on how to select an appraiser. In lieu of appraisals, we may establish fair market value at an agreed amount if an agreement can be reached between you and us. Determining Value of Capital Improvements Capital improvements with a value exceeding $2,500 (but no maintenance or repair costs) may be added to your cost of the property for the purpose of determining the net appreciated value, but only if the procedures set forth in the shared appreciation loan documents are followed. It is important to note that capital improvements completed and claimed in any 12-month period must add more than $2,500 in value to the property and must generally also cost more than $2,500. However, if you have performed at least half the value of the labor or other work involved, then the cost of the improvements will not be considered. The appraised value of the improvements will be the increase in the value of the property resulting from the improvements. You will receive no credit for minor or major repairs or for improvements that are not appraised at more than $2,500, but the lender will acquire a share of any resulting appreciation in the value of the property. Determining Net Appreciated Value We are entitled to receive __ percent of the net appreciated value of the property as contingent interest. As shown in the chart above, net appreciated value equals (1) the fair market value of the property at the time of the sale or appraisal, less (2) your cost of the property, less (3) the value of any capital improvements for which you are entitled to credit. Balloon Payment of Principal If you do not sell the property before the end of the term of this loan, you will need to refinance this loan at that time. The term of this loan is (duration) years. We